Investment choices of high net worth versus the average investor.

  • Rand Low

Press/Media: Expert Comment

Description

Rand Low, Associate Professor of Quantitative Finance at Bond University, says high net worths are more likely to diversify out of stocks, real estate and cash as they have exposure to other financial products out there such as private equity and fixed income.

A growing number of high net worths are also increasing their investment stakes in ‘digital assets’ such as cryptocurrencies, security tokens, digital art, cryptocommodities and more, he says.

“High net worths are beginning to recognize the potential of blockchain as a disruptive technology and are beginning to take increasingly large positions in cryptocurrencies and digital assets.  

“Although some high net worths are sceptics, they adopt such an approach as a hedge to ensure that they have a stake in this burgeoning new technology.  

“Others may be blockchain enthusiasts and are growing the size of their investments according to the developments of the industry, especially in Decentralized Finance (DeFI).”

 

The Australian equities market is worth AUD$2 trillion and is 15th largest.  Compare this to the NYSE that is the largest stock exchange in the world with a market capitalization of USD$25 trillion, says Low.

With large sums of funds to invest, high net worths look beyond Australia to deploy their investments in the US, European or Asian markets to access a larger pool of opportunities and generate a greater return.

“Diversification is about ensuring that you have multiple income streams that are uncorrelated to your core income-generation activity.  

“For average investors who are earning salaries in Australia, if they allocate a majority of their investments in Australia, when a domestic economic downturn occurs then both your salary and your investments are jointly negatively impacted.   

“However, if your investments are in US, Europe or Asia, a domestic downturn will not impact your investment portfolio. “

 

Low says diversifying into fixed income by purchasing corporate bonds is preferable for high net worths to generate a stable income stream without the volatility and risk of investing in the equities market.  

“However, as Australia has a small retail corporate bond market, most fixed income investments are in international corporate bonds. 

 

As HNW's look to protect their wealth, they are more likely to invest in assets are well-known to be safe havens and hedges against economic downturns such as gold, silver, and even diamonds, says Low.

They are also more likely to invest in corporate bonds to continue generating a stable income.

 

A focus on leaving something behind for the children usually leads high net worths to start performing tax and estate planning at an early stage, says Low.

“It also allows them to invest for the longer term in buying assets or property with the view that it has growth potential that they may not see within their lifetimes but their children or grandchildren will.”

Period1 Sep 2020

Media contributions

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Media contributions

  • TitleInvestment choices between high net worth and the average investor
    Degree of recognitionInternational
    Media name/outletCitibank Private Wealth
    Media typePrint
    CountryAustralia
    Date1/09/20
    DescriptionRand Low, Associate Professor of Quantitative Finance at Bond University, says high net worths are more likely to diversify out of stocks, real estate and cash as they have exposure to other financial products out there such as private equity and fixed income.
    A growing number of high net worths are also increasing their investment stakes in ‘digital assets’ such as cryptocurrencies, security tokens, digital art, cryptocommodities and more, he says.
    “High net worths are beginning to recognize the potential of blockchain as a disruptive technology and are beginning to take increasingly large positions in cryptocurrencies and digital assets.
    “Although some high net worths are sceptics, they adopt such an approach as a hedge to ensure that they have a stake in this burgeoning new technology.
    “Others may be blockchain enthusiasts and are growing the size of their investments according to the developments of the industry, especially in Decentralized Finance (DeFI).”

    The Australian equities market is worth AUD$2 trillion and is 15th largest. Compare this to the NYSE that is the largest stock exchange in the world with a market capitalization of USD$25 trillion, says Low.
    With large sums of funds to invest, high net worths look beyond Australia to deploy their investments in the US, European or Asian markets to access a larger pool of opportunities and generate a greater return.
    “Diversification is about ensuring that you have multiple income streams that are uncorrelated to your core income-generation activity.
    “For average investors who are earning salaries in Australia, if they allocate a majority of their investments in Australia, when a domestic economic downturn occurs then both your salary and your investments are jointly negatively impacted.
    “However, if your investments are in US, Europe or Asia, a domestic downturn will not impact your investment portfolio. “

    Low says diversifying into fixed income by purchasing corporate bonds is preferable for high net worths to generate a stable income stream without the volatility and risk of investing in the equities market.
    “However, as Australia has a small retail corporate bond market, most fixed income investments are in international corporate bonds.

    As HNW's look to protect their wealth, they are more likely to invest in assets are well-known to be safe havens and hedges against economic downturns such as gold, silver, and even diamonds, says Low.
    They are also more likely to invest in corporate bonds to continue generating a stable income.

    A focus on leaving something behind for the children usually leads high net worths to start performing tax and estate planning at an early stage, says Low.
    “It also allows them to invest for the longer term in buying assets or property with the view that it has growth potential that they may not see within their lifetimes but their children or grandchildren will.”
    PersonsRand Low